I’ve seen a lot of crazy moves in my almost two decades of following the markets. The Long-Term Capital Management crisis in 1998. The dot-com bust and Nasdaq crash in 2000-02. The housing collapse and credit market implosion in 2006-09.

But I’ve never … ever … seen anything like what just happened in the currency market. In a move that utterly shocked traders from one end of the globe to the other, the Swiss National Bank abandoned its “peg” for the Swiss franc. It simultaneously said it would cut deposit rates to a whopping negative-0.75 percent from the previous negative-0.25 percent.

The move came as a complete surprise because the SNB had been maintaining a minimum level of 1.20 francs to the euro since September 2011. Or in other words, it promised that one euro would buy no fewer than 1.20 francs — and would defend that peg “with utmost determination.”

The supposed goal was to prevent Swiss deflation. But the SNB’s balance sheet was growing by leaps and bounds as a side effect. It had to print francs out the wazoo and buy up billions of euros to maintain the peg.

That swelled its foreign currency hoardto the equivalent of a record 495 billion Swiss francs as of late 2014. But with Euro-QE likely right around the corner, policymakers realized the jig was up. They just couldn’t keep defending the 1.20 level. So they threw in the towel.

The result was swift and severe. The euro plunged to the point it bought less than 0.90 francs in a heartbeat. Just look at this chart, and you can see the implosion in the EURCHF exchange rate (at the far right) is absolutely unprecedented!

Click chart for larger version

The Swiss stock market also tanked more than 10 percent amid fears the move would eviscerate earnings for Swiss exporters. And benchmark, Swiss interest rates fell further into negative territory — with 10-year note yields sinking to minus 0.014 percent.

But if you’re not a currency speculator who just got destroyed shorting Swiss francs …

If you’re not planning a ski trip to the Swiss Alps, and your lift ticket suddenly got much more expensive …

And if you don’t own something like the iShares MSCI Switzerland Capped ETF (EWL), which rose almost 4 percent today because the Swiss franc rallied sharply against the buck as well as the euro …

Why should you care? What does this move mean to you?

First, as I noted, the dollar tanked against the Swiss franc in the wake of the move. It also got clocked against some other currencies that it had been crushing, including the Australian dollar, New Zealand dollar and Canadian dollar.

Swiss franc soars as central bank shifts course.

With U.S. dollar sentiment so bullish lately, and sentiment on those currencies I just mentioned (as well as the Japanese yen and euro) so negative, this is just the kind of “shock and awe” move that can change trends in a big way!

[Editor’s Note: Want to get your hands on Mike’s “buy” and “sell” signals”? Just click here.]

Second, the rising dollar has been a key force putting immense pressure on the prices of commodities and precious metals. That’s because they’re priced in dollars, and tend to trade as “contra-dollar” assets.

But this SNB move puts one stake in that dollar rally. And it’s entirely possible that traders will “sell the news” of a European Central Bank QE program if it’s announced next week. That’s because they’ve already “bought the rumor” of a program by driving the euro down to 1.17 against the dollar from 1.40 just last spring.

Result: We could see the dollar tank, and commodities soar, in a vicious counter-trend move. The precious metals market already appears to be sniffing that out, by the way. Gold just hit $1,261 an ounce earlier today, up more than $120 from its November 2014 low and a four-month high!

Third, these moves could change the leaders/laggards makeup of the U.S. stock market. We could see sectors that were rocking and rolling — airlines, retailers, real estate, utilities, etc. — take a breather, and sectors like miners, materials and energy pick up the baton and run. That would come as a big surprise, considering how much doom and gloom we’ve heard about energy and other related investments.

Finally, this move by the SNB should underscore a point I’ve made for some time. You can’t trust central bankers further than you can throw them! They can promise you the moon and the stars — say they’re going to keep rates low … raise them in a few months … maintain the value of your currency at a certain level … or just about anything else.

“We could see the dollar tank, and commodities soar, in a vicious counter-trend move.”

But they’ll go back on their word as soon as it suits them, and as soon as the data prompts them too. So if you’re positioned in any market solely on the promise of a small group of Ivory Tower economists and bureaucrats, you’re taking your financial life into your own hands.

Now, here’s another recommendation for you: Hop on over to the Money and Markets website and get talking about this Swiss Shocker. Do you think it was a smart move or a dumb one, and why? What impact do you anticipate it’ll have on the currency market, or on your own investments?

And what about central bankers in general? Are they now a destabilizing force, rather than a positive one for asset values? Let me know!

Our Readers Speak

In the wake of yesterday’s column on the ongoing legal fiasco enveloping U.S. mega-banks, many of you said they brought it on themselves. You also said it’s (sadly) unlikely to change!

Reader Bob S. said: “Some years ago, the retiring Attorney General of Oklahoma opined that the law profession could profile its ideal client: Rich. Stubborn. And Wrong.

“Anyone too hard-headed to admit an ethical lapse will continue to be wrong and won’t learn from the litigation in which he gets dragged, that he needs a better way to earn a living. If he also has money, he will spend it on lawyer fees. The behavior continues until the money is exhausted.”

Reader Ron Ray M. added: “If bankers were not such big crooks, they would not need all the lawyers. However, one of the primary jobs of the lawyers is to figure a way to skirt the laws so jail is not an option. Looks like they are doing a good job. Bankers and lawyers rarely go to jail.”

Meanwhile, Reader Mike McD. noted that the mega-banks are making life harder for their smaller competitors by screwing up the whole regulatory environment. His take:

“The actions of some are pushing costs onto many. JPM, Citi, BofA and others have caused — and continue to cause — so much pain on the industry. Even the good guys like BB&T are experiencing higher legal and compliance costs due to all the new regs and other often misdirected government oversight.”

Finally, Reader Al McN. offered his opinion on the best solution: Make banks get back to basics! His comments:

“The U.S. needs to completely revamp the banking system. The system should be designed so that banks lead much simpler financial lives. They should evaluate risk and loan money period.

“Allowing banks to trade for profit is absurd. They can and do rig markets. Plus, they distort evaluation of value through derivatives, which make virtually any entity who trades them not understandable.”

Thanks for the comments. I agree that we’ve gotten far away from the traditional banking model, and that it was a huge source of turmoil during the credit crisis. The revolving door between banks and bank regulators, where public servants toil away for a few years in Washington solely for the purpose of securing cushier, higher-paying Wall Street jobs afterwards, is another major problem.

Looking to buy and light up a Cuban cigar … legally? Well, thanks to new measures being put in place by President Obama on Friday, you can. Business travel to Cuba will also become easier, as will the sending of money back to Cuban relatives for U.S. Cuban ex-pats.

Did you get a load of the moves we just saw in crude oil? The price of oil reversed course in the afternoon yesterday, surging 5 percent from its lows. Then it spiked as high as $51.27 this morning … before falling back to the low-$46 area.

I don’t know if this extreme volatility is a sign we’re very near to THE bottom. But what I do know is everyone and his sister is short oil and oil stocks, and sentiment is massively negative. So all you need is a spark to start one heck of a fire!

On the earnings front, two more mega-banks whiffed in the wake of JPMorgan Chase (JPM, Weiss Ratings: A). They include Citigroup (C, Weiss Ratings: B+) and Bank of America (BAC, Weiss Ratings: B-).

Citigroup profit plunged86 percent to $350 million, or 6 cents per share, in the fourth quarter from $2.5 billion, or 77 cents per share, in the year-earlier period. Revenue was flat, but earnings got hammered by $3.5 billion in charges for … you guessed it … legal costs (and other expenses)! Bank of America earnings dropped 14 percent, hurt in part by yet another $393 million in legal expenses and a plunge in sales and trading on Wall Street.

Oscar nominations were announced today, with movies like “Birdman” and “Boyhood” leading the way with the most accolades. They’re also movies I’ve never heard of, and will almost certainly never see! In my experience, that’s par for the course with Oscar nominations. Oh well.

Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.

{36 comments }

PhyllisoficalThursday, January 15, 2015 at 5:41 pm

Don’t worry about not seeing “Boyhood.” It was a snooze-you-loser flick.

SolunaThursday, January 15, 2015 at 5:47 pm

I think you missed the real news: the Euro is tanking and the Swiss just gave up trying to support tying their Franc to the Euro. This is another nail in the Euro coffin. The yo-yo effect in the Swiss markets will soon settle down but the Swiss just removed themselves as a buyer of the Euro.

GerdThursday, January 15, 2015 at 11:26 pm

I agree. If the Swiss central bank did not foresee an additional very significant drop in the Euro they probably would not have made such a drastic move.

WilliamFriday, January 16, 2015 at 2:57 pm

My understanding is that the original Franc/Euro cap was to keep the value of the Swiss Franc stable for Swiss exporters when people with euros were buying Swiss Francs 4-5 years ago for protection; the Swiss say that gambit is no longer necessary – you ask what I think – smart or stupid – my Masters does not include global currency manipulation, but the Swiss have always impressed me as being sharper than the other knives in the drawer (including ours), so I am voting that it was a smart move – yes, I know the difference between stupid and smart is always based upon your personal perspective, so here is mine – if it helps overcome the central banks manipulation of gold prices at the request of their governments, who desperately need gold prices to remain depressed, I am all for it. Gold is pathetically underpriced – based upon nothing more sinister than the reported rate of US inflation since 1980, gold price should be near US$ 2,500 – enough said.

RUSS SMITHThursday, January 15, 2015 at 6:13 pm

Hi!, Patrons Of Money & Markets Et. Al.:

How many times have we had it pointed out to us by various market analysts to watch out for those Black Swan events? Then, when one happens such as the Swiss fiasco, there is panic in the markets? Doesn’t make any sense does it? The whole idea of the markets is to distribute winnings and losses based on risk taking isn’t it? Sometimes we make money but other times we loose money don’t we? There can’t be anything wrong with that can there? Wedged in the middle are the sure money brokers who make profits when they help us enter a trade and again when we exit a trade via their commissions. If anyone wants to make sure money in the markets, let them get registered and then go to work as a broker who is eligible to make commissions that aren’t involved in risky market volatilities etc.!! Very few people become brokers but those who do live well and secure from both entry and exit commissions from both sides of each trade. All my own personal opinion. CHEERS:

I am a Swiss Canadian living in Canada. I get a pension in Swiss Francs and should be delighted. However, the movement is far too abrupt. I have advocated many months ago that there should be flexibility to the limit of say ! % every six months in order to allow the export sector to get adjusted, 70 % of all Swiss exports go to the EU and abrupt swings will hamper smooth trade.
Regards
Jakob

Ronald E. BakerThursday, January 15, 2015 at 6:24 pm

On my first visit to Switzerland in 1965, I received about SwFr. 4,25 for my US $. Although not perfect, the Swiss Franc is a pretty good barometer of how poorly the US$ has been managed over the years. In those days, the Swiss backed their currency around 50% in gold. Sadly, somehow they have failed to keep that level of probity and sold off a large part of their holdings in gold, at a loss now I suspect.

booksThursday, January 15, 2015 at 6:30 pm

The movie Boyhood was a great study of a boy growing up through the years dealing
with his parents’ problems, various moves, bullies in school, and just plain growing up and maturing. The same cast returned year after year for continuity. If you like action movies this is not for you, but if you like “slice of life” movies and movies with character development and an appreciation for what it means to be human, go see the movie.

JerzyThursday, January 15, 2015 at 7:09 pm

I am not on expert, but what I see, is a big support to reorganize thinking of a big money in a safe heaven. Most of the problems our World is facing today is the mass amount of money stored on the top. Which, can not be used efficiently. Effectively the paradigm where rich are getting richer just stopped working for the rich. Money at certain level is treated like commodity.
Current accumulation of it on top is as such that, money as we know it, is worthless for the bankers. Bankers however, must protect the mouse trap they control or be content of its slow destruction. Clearly by offering negative.75% for the deposit they have passed the message: use it or loose it. Is that good for the economy at large? absolutely. The reason Feds needed to print money, is because, the market control distortions, which is, massive amount of variety of mouse traps working only one way and only for the rich, eliminated liquidity for the real market and real economy. Essentially, print money or allow the system to collapse. Now, we see an additional attempt to re-balance that inefficiency and force the rich to invest or rethink the paradigm, because, you will slowly loose advantage of having it. It is tremendously supportive for the market at large for the long term.

HowardThursday, January 15, 2015 at 8:52 pm

Hi Mike

For some time now, what has happened in America has been important and it still is now. However you are beginning to see other influences like the interest rate cuts in China and now India from a higher base than we are use to and this may stir growth. If we increase interest rates too soon in the U.S. then this may strengthen the $US making imports more expensive. There are issues of capital flight and there are similarities with the decade after 1929, but it’s a little more complicated now. However, as always it will be interesting to see how it all unfolds.

HowardThursday, January 15, 2015 at 9:14 pm

Sorry that was meant to be exports.

HowardThursday, January 15, 2015 at 9:14 pm

Sorry that was meant to be exports.

DavidThursday, January 15, 2015 at 8:58 pm

Mike, In the light of the SNB move how does this affect your recommendation the EUO?

BillyThursday, January 15, 2015 at 9:32 pm

MIke,

I think its very clear. The move by the Swiss indicates we have major currency capital markets problems and it is clearly pointing to deflation as a key problem. Combine the Swiss move, with the rising dollar, the high possibility of a Greek exit from EU and possible the rest of the PIIGS following along with the commodities/oil crash causing severe pressure on high yield junk bond market, China real estate bubble busting and you have a perfect storm for a major equity correction and an absolute Central Bankers Nightmare. The fact that the Fed could not control the world wide commodities/oil crash suggests we are going to have one big correction soon that should rival the equity correction of 2007 to 2009.

CatherineThursday, January 15, 2015 at 9:45 pm

Maybe the Swiss finally figured it out. The Euro is on the way out. Time to quit supporting and let it meet its overdue demise… and let the chips fall where they may. Simple!!

CatherineThursday, January 15, 2015 at 9:46 pm

Maybe the Swiss finally figured it out. The Euro is on the way out. Time to quit supporting and let it meet its overdue demise… and let the chips fall where they may. Simple!!

RichardThursday, January 15, 2015 at 10:17 pm

we have not heard about US bank exposer to Swiss Franc?

PeterWThursday, January 15, 2015 at 11:02 pm

It appears that the Swiss Bank does not wish to participate in another QE. That is not good for the US, as the US is banking on all the Democracies printing massive amounts of Money with massive inflation.

Switzerland says NO!!!!!!!!

Billions/Trillions cannot find a safe home that will at least be worth as much next year as this year, and the banks are saying NO!!!!!!!!. You must pay us to hold your money as we do not want it.

There is no where to invest reasonably safe..

BobThursday, January 15, 2015 at 11:58 pm

Swiss are justified in cutting peg to euro and were tired of buying that crappy euro, an imbecilic creation of politicians. As for central banks and the Fed Reserve in particular they have always been a destabilizing force. President Wilson was deceived by the investment banks into signing the Federal Reserve Act, a self serving document concocted by the investment banks, and in later years he profoundly regretted signing it into law.

HowardFriday, January 16, 2015 at 11:39 am

Yes

ricecakeFriday, January 16, 2015 at 12:47 am

Seems a easy fun game to play for those who are rich and smart enough? When you need export more than import, your devaluate your currency but when you need to import more than export, you just have to high the value of your currency.

DonSaturday, January 17, 2015 at 12:05 am

That’s what many Mediterranean nations did pre-Euro, and what the Greeks (and Spanish and I suppose the Italians) would like to do now, but it only works if you own the printing press and can print your own money.

Alice MaxwellFriday, January 16, 2015 at 1:29 am

The big banks are playing patsy for Congress and the President since the biggest debt in the world has been because our government buys its power by spending willy nilly on all social experiments and has not had a budget in years! The Treasury just calls the banks and says”we need 85 billions new money every month, get it up”! The big banks have to arrange some action to make it look like they have the moola to do this but they don’t. This is why they have all that new high flying “monetary paper”, simply transfers running on a highly sped up”kite” all around the world to pay for governments’ excesses..

The small banks are being crushed by this. Washington does not care about them. If it did,it would increase “cash” but it can’t because our government and every government in league with us are bankrupt. So the system has to run on electronic credits, except OPEC which collects all cash available since it says it takes petrodollars only, physical dollars,no electronic credits thank you. However, the USA does use other countries cash to buy elsewhere what we need to continue and gives those countries being so used,treasury bonds which the Fed must process for the Treasury to make it look like it is “up and up”.

This week all banks turned in their reports and they did not fudge them like they did in the past. They came right out and said they were in precarious states brought on by excess government spending and then excess fines for trying in different ways to get the “values” that Washington insist they have to cover for Washington on its spending spree. They have served notice, they cannot cover for our so called “leaders” any more…

Bank resources today are not money that can be distributed, they are our government’s bonds and every other government’s bonds in the system. The banks have no gold because our US gold stash was sold off during JFK’s tenure when his Treasurer sold it for35 bucks an ounce since that was what the Treasury recorded it had paid for it! Our gold ran out even as JFK was being eulogized after his assassination. Our government under the succeeding presidents ordered the Fed to dip into the gold stashed by other nations for safekeeping in the US while WWII progressed, never returned after the war, and use that when USA debts had to be paid and of course, it isn’t there now. The USA used the rational that since we had won the war for all,that was the cost due the US for having done so. That is why there is never a hue and cry except from those nations who never were in WWII like Venezuela who got their gold back when they asked for it..

I don’t know what has made so many of your followers take such an anti-Wall Street stand. They should know the US and other governments are setting up Wall Street and the “International Bankers ” to be the fall guys for the collapse now proceeding.due to governments representing their citizens who together have spent the wealth accumulated over a millenium for the joys and toys we live with today, for everyone even if they did not do a day’s work in their lifetime.

Who are your complainers going to blame when Wall Street is no more? The City of London,Paris, every capital in Europe! No, it won’t be themselves for being so stupid, will be Russia and China!

What a laugh.

JohnFriday, January 16, 2015 at 1:55 am

This may be a brilliant calculated downgrade to adjust the Swiss Franc to where it really should be valued at by forcing weaker currencies to follow and convert to Swiss Francs to preserve wealth. Precious metals and commodities should start rising again as a safer wealth preservation havens. I have noticed that many bank share prices have been falling since December and you can’t blame it all on declining oil prices. The overprinting and supply of money cannot justify inflated prices for goods and services along with high unemployment and wages not keeping pace with inflation and stagnant economy. Nothing can survive without consumers spending. We really need deflation to make things affordable for consumers, but governments are doing the opposite and creating more inflation, which is harming the economy. This happen back in 2007-2008 with the derivative swaps and banking institutions in the housing boom bust. I say don’t save the major banks and let them go bankrupt. Don’t bail them out this time. There are plenty of medium and smaller banks that can fill their shoes. Why do we give the big banks a free ride and a guaranteed profit for being greedy? They charge usury interest rates on credit cards and give pittance on savings accounts. Audit the Federal Reserve and starting closing and imprison bankers instead of fining them for manipulation, insider trading, and fraud. When you fine these guys, they aren’t using their own money, but money from shareholders and company assets. In China, they would shoot these people.

DavidFriday, January 16, 2015 at 2:53 am

I feel that the Swiss as a nation were never punished with regard to their trade with the Nazi Germany. it is a country that would be difficult to subdue mainly due to the terrain. Al;so when you add the attitude of it’s banks regarding the Gold that belonged to the Jews who were persecuted by the Nazis. Trains full of people heading for the death camps passed through swiss territory and in some cases residents complained about the pitiful cries of the people in the trains and as a result the trains no longer stopped in some stations. A small country which was nothing before WW2 became possibly the richest country in the world through it’s association with Nazi germany and it was never punished for it. A more arrogant nation does not exist on the Planet.

Nicholas KyriaziSaturday, January 17, 2015 at 8:39 am

Read ‘Target Switzerland’ by Stephen P. Halbrook for an accurate description of Switzerland’s behavior in WW2.

MikeFriday, January 16, 2015 at 4:10 am

Martin often recommends maintaining some of one’s portfolio in cash, but he never gives advice about which currency the cash be kept in. I keep 20% of my portfolio in Swiss Francs, Singapore Dollars and Canadian Dollars. Sure, I’ve been creamed on my CAD, but yesterday I made a huge profit on my Swiss. Why doesn’t Martin recommend currencies? The interest that they pay is not significantly lower than that earnable on the USD.

DeniseFriday, January 16, 2015 at 8:53 am

What do you recommend for IRAs in these volatile times?

Donald LinkFriday, January 16, 2015 at 12:12 pm

As an unabashed free trader, I regard the Swiss move as simply one small step toward monetary sanity. If countries were held to account for their monetary policies instead of being able to manipulate their way out of their own created messes, the world would be much better off.

Don AckermannFriday, January 16, 2015 at 2:12 pm

I’ve been very patient in holding gold stocks. I made a lot of money with them in years past but gave back some in the last two years. I hope this is what I was waiting for. Is it?

vin cellaFriday, January 16, 2015 at 7:02 pm

when should I sell EURO ETF?

DonFriday, January 16, 2015 at 11:58 pm

Of course the unexpected move is causing a lot of forward traders in currency to lose their shirts, and probably will bankrupt any with thin reserves, but there will probably be a knock-on effect in many of the soft currency countries (Russia, Hungary, etc.) where many real estate loans were denominated in Swiss Francs in order to get lower interest rates and hedge against inflation in the host currency.

I foresee the likelihood of significant disruption of housing and mortgage markets in those countries, along with defaults on some loans that are now simply too dear relative to the equity.

Brad BSaturday, January 17, 2015 at 3:06 am

It would be nice to know which banks to trust and which would survive a financial crash. I
know Wells Fargo is in pretty good shape. I don’t know about US Bank (my bank). I can
not believe those big banks are pulling the same stunts with those worthless derivitives that got them into trouble back in 2009. Why are we not enforcing banking regulations?
Thanks for informing us about this Mike.

FredSunday, January 18, 2015 at 12:50 pm

Banks are in trouble. Big downturn is starting. Credit Crisis 2 is brewing.

dave freySunday, January 18, 2015 at 11:24 pm

saw article on fed.res. looks like they gave out most of asset in div. or bonuses. to have little cash at stake if , they get in trouble.